Thursday, January 21, 2016

Perspective On the BRICS and the G-7

Economic power is shifting. But, to believe some people in the legacy media the rich countries have already been supplanted by the up-and-comers. Don’t believe the hype.

The G-7 is the deprecated name of the 7 big, developed economies, that dominated the global economy from the 60’s through the 90’s: America, Japan, Germany, the UK, France, Italy, and Canada in order of size.

BRICS is the trendy new acronym to collectively describe 5 large, but still less developed economies: Brazil, Russia, India, China, and South Africa. Those are not in order of size, but rather in an order to produce an easy to remember (and pronounce) acronym. I also think there’s some wishful thinking involved in this list. Note that there’s one country from every region. And it includes Russia, which is, at best, a fading power. It also includes South Africa, which … umm … really shouldn’t be on the list unless someone said you have to have an African country. Also note that it excludes some countries that are probably big enough to get on the list, but are already from a represented region (for example, Pakistan, Vietnam, Nigeria, Ukraine, Mexico, and so on).

As always, be aware that eye-catching graphics often … don’t say that much. This is a perfect example: if you look closely, the two panels show the exact same thing.

Keep in mind that what’s being shown here is proportions. All of these country’s economies are getting bigger. What’s being shown here is who is getting bigger faster, and who isn’t.

Anyway, the proportion of the global economy in the G-7 has been dropping. And the proportion in the BRICS has been going up. That’s a good thing: not in and of itself, or because it shows “diversity”, but because the G-7 used to be such a big proportion because so much of the world was grossly mismanaged. We should want the BRICS to be a larger share because it’s humane. Period.

Having said all that, the focus on groups obscures what’s really a story about two countries. Yes, the BRICS proportion is going up, but that’s mostly coming from China. The other countries are laregely stagnant. And yes, while the proportion in the G-7 has gotten smaller, and really all of the countries have seen their proportions go down, the big loser is Japan.

This chart accompanied a piece entitled “BRICS’ New World Order Is Now On Hold” that appeared in the January 20 isse of The Wall Street Journal.